Hong Kong will pay HK$11.2 billion to continue importing water from the Dongjiang, or East River, in Guangdong under a three-year deal that locks in the flow of up to 2.46 billion cubic metres as competition for water grows among Chinese cities.

The city will pay HK$3.5 billion in 2012, HK$3.7 billion in 2013 and HK$3.9 billion in 2014 each year to maintain the current maximum supply of 820 million cubic metres - representing increases of between 5.7 and 5.8 per cent a year. Inflation and the strengthening of the yuan are behind the increases.

This year, the city paid HK$3.3 billion for the same amount of water.

The deal with the Guangdong government means each cubic metre of raw water will cost HK$4.30 next year and HK$4.80 in 2014.

The cost will be even higher if Hong Kong, as it has in recent years, draws less than the maximum volume permitted under the deal, which promotes flexibility of supply based on actual demand. The deal also allows Hong Kong to raise the maximum amount of water it draws from 820 million to 1.1 billion cubic metres per year if the need arises.

Li Wenfeng, assistant general manager of the Guangdong Yue Gang Water Supply Company, a subsidiary of Hong Kong-listed GDH Limited, the Guangdong provincial government's investment window company in Hong Kong, said operating costs had risen due to inflation but refused to say by how much.

Despite the price rise, water officials said they had no plan to raise water tariffs, which have not changed since 1995. But they pledged to continue studying the possibility of adjusting the progressive tariffs for water use, under which the first 12 cubic metres are free and customers are charged HK$4.10 per cubic metre for the next 30 cubic metres used.

Water from the Dongjiang is piped 70 kilometres to Hong Kong, and provides 80 per cent of the city's water. Domestic reservoirs supply the remainder.

The government has proposed building a water desalination plant at Tseung Kwan O, which would initially be able to produce 50 milliion cubic metres of potable water a year - but at a price of HK$12 per cubic metre compared with HK$7 per cubic metre, including treatment costs, for Dongjiang water and local supplies.

Officials say there are no plans to replace the water supplied from the Dongjiang through desalination.

Professor Terrence Chong Tai-leung, of Chinese University's economics department, said that while the price rises for Dongjiang water seemed reasonable, officials should overcome the political obstacles to raising the price for customers in order to conserve water. 'Water is now priced too cheaply to encourage people to save water,' he said.

Hong Kong's per capita water use is among the highest in Asia; it was about 371 litres per day in 2009, compared with 308 litres in Singapore and 311 litres in Seoul.

A Development Bureau spokesman said maintaining a reliable supply for the city was a top priority amid growing competition for water from cities in Guangdong, whose supplies were already subject to quotas. He said a reserve capacity was needed to cope with dry years like this year.

The bureau spokesman disagreed with suggestions the proposed desalination plant would be used as a bargaining chip in a future round of water negotiations. The government would continue to promote water conservation, he said. One initiative was to complete the replacement of old water mains by 2015, which would reduce the amount lost to leaks from 25 per cent to 15 per cent.